BayernLB Says Hypo Alpe Sale Based on ‘Illegal’ Split-Up

Bayerische Landesbank said it was illegally circumvented in the breakup of nationalized Austrian Hypo Alpe-Adria-Bank International AG, escalating a cross-border fight over billions of euros lost in the Balkans.

BayernLB’s rights were ignored when Austria split Hypo Alpe into a Balkan banking unit it plans to sell and a wind-down vehicle named Heta Asset Resolution AG last month, the Munich-based state-owned lender said in a statement today. It therefore can’t approve the planned sale of the business to private equity investor Advent International Corp., BayernLB said. Heta said it will go ahead with the sale. Its bonds tumbled.

“BayernLB’s participation right was circumvented,” the bank said in the statement. “Based on our legal review, the transaction was a significantly detrimental deal that was not acceptable under those conditions.”

Hypo Alpe’s successor Heta is keeping politicians, bankers and courts busy five years after it came close to collapse. The Austrian government, which has already spent 5.5 billion euros ($6.9 billion) on the bank, is trying to recoup funds from former shareholders and creditors, primarily BayernLB, to limit the need to call on taxpayers again.

Bonds Plummet

Heta’s 4.375 percent senior bond due 2017 dropped as much as 2.8 cents today to 81.3 cents on the euro, the sharpest decline in two months, trading at a bid yield of 15.7 percent, according to Bloomberg generic prices.

“We have more concerns about Heta Asset Resolution seniors,” said Eva Olsson, director for credit strategy at Mitsubishi UFJ Securities International Plc. “Our concern about governance and oversight increases as a result of this development. We see increased risk for every creditor of the franchise at this point in time.”

Failure to sell the Balkan banks, now known as Hypo Group Alpe Adria, would be a setback for Austria and could force it to shut down the business, which owns banks in the countries of the former Yugoslavia with total assets of 8.4 billion euros. The deal must be closed by the end of 2015, according to the terms of the European Union’s state aid approval for Hypo Alpe. Austria is in exclusive talks with Advent and its partner, the European Bank for Reconstruction and Development.

Heta said in a statement that it assumes the bidders’ interest is “intact” and that it will go on with the process. Advent continues to work toward signing the deal, a spokesman said. A spokesman for the EBRD declined to comment.

Retroactive Veto

BayernLB argues that Hypo Alpe and Austria neglected to ask for its approval when it transferred the Balkan banks to Austria’s Fimbag, an agency that handles the Alpine nation’s stakes in banks, last month. The Bavarians now retroactively vetoed that transaction and are looking into further legal options, a spokesman for BayernLB said.

The Bavarians also said the “illegal” breakup triggered a guarantee Austria gave when it nationalized Hypo Alpe five years ago. It demanded Austria pay 2.4 billion euros that Heta owes BayernLB in overdue loans within 14 days. The Austrian finance ministry said BayernLB’s claim it had guaranteed the loans is wrong and it has no obligation to pay.

A court case about the loans BayernLB made to Hypo Alpe continued in Munich today with testimonies of two former BayernLB chief executive officers.

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